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ocal business associations have criticized the implementation of the government-paid import duties (BMDTP) incentive for this year, saying that the complicated process to get the facility rendered it ineffective.

Indonesian Autoparts Industries Union (GIAMM) chairman Hadi Suryadipraja said in Jakarta on Friday that to date, the Finance Ministry had not issued the implementation ruling that would enable industrial companies to access the fiscal incentive.

He said that manufacturers were mostly unable to get the BMDTP incentive allocated for last year.

“As we experienced last year, the PMK [Finance Minister Regulation[ was passed in December 2010
and the supporting regulation for each sector to get the incentive was later issued in August. It was
not until October that we could access the facility,” he told reporters after a gathering at the Industry Ministry.

Hadi further said that another facility technically known as KITE, which removes or returns import duties, value added tax (PPN) and luxury tax (PPNBM) on materials processed into goods for reexportation, had dissuaded local manufacturers from requesting the BMDTP incentive. Manufacturers obtaining the KITE cannot at the same time access the BMDTP.

“The KITE aims to boost exports, while the BMDTP is to increase the competitiveness of the local industry,” he said, adding that the government-covered duties would be necessary to help local producers survive the tighter competition from foreign manufacturers, which could enter the domestic market with lower or even zero percent tariffs under various free-trade agreements made by the government and its counterparts.

The fiscal incentive of BMDTP allows local producers to get lower material prices as the government pays the existing import duties.

First introduced in 2008, the facility — which covers goods that cannot be produced at home and cannot meet demands of the domestic industry — has been maintained as a part of the government’s efforts to achieve 7.1 percent growth in manufacturing this year.

However, its application is less effective as proven by the low absorption of the allocated funds by the Industry Ministry. Last year, the ministry spent only 12.8 percent of its Rp 1.14 trillion (US$125.4 million) allocated for duty payments.

This year, the ministry has allocated Rp 840.35 billion (US$92.44 million) to pay the duties on the materials and proposed to the Finance Ministry that the facility this year cover imported raw materials and capital goods in 14 sectors that do not get the duty-free tariff harmonization, including auto parts, electronics, ships, coal-fired power plant transformers, heavy equipment, fertilizers and trains.

Indonesian Woven Polyolefin Manufacturers Association (GIATPI) secretary-general Totok Wibowo voiced a similar concern, saying that the difficulty in getting the BMDTP had left its members unable to benefit from the facility, deemed necessary to weather the impacts of the influx of similar products from other countries.

“We are among the worst affected by the restriction as many of our members make use of KITE,” he said.

Totok explained that while a firm could produce different goods for export and domestic purposes, both fiscal incentives also regulated different kinds of raw materials and therefore there was no overlapping.

“If a firm export sacks, it will pay no duty on polypropylene only under the KITE. Meanwhile, for domestic sales, it may need duty removal for polyethylene and other products, which are covered by the BMDTP,” he cited an example.